HJ Sims Provides Acquisition Financing for Healthcare Community in California
Founded in February 2017, Links Healthcare Group (“Links”) is a privately held company based in San Diego, California. Links provides healthcare and rehabilitation services to more than 1,000 long-term residents and short-term high-acuity patients in its skilled nursing facilities. Links focuses on acquiring underperforming assets, and improving performance through the implementation of its policies and procedures and cost-control measures, while improving overall patient care. HJ Sims previously partnered with Links in 2019 to provide first mortgage financing to fund the acquisition of another skilled nursing facility in California.
Links took over management of a troubled skilled nursing community (the “Community”) located in California in January 2018. At the time Links assumed management, the Community was suffering from both clinical and financial issues. Links was been able to significantly improve the quality of care at the community as well as its financial performance. Links reached out to HJ Sims and its national bank partner (the “Bank Partner”) for debt financing to acquire the Community.
HJ Sims and the Bank Partner proposed a high-leverage, unitranche first mortgage (the “A/B Loan”) to fund the acquisition. The proposed loan combined two tranches of debt into a single debt instrument (the “A/B Loan”) with the Bank Partner providing a portion of the A/B Loan (the “Tranche A Funding”) on a priority basis and HJ Sims providing a portion of the A/B Loan (the “Tranche B Funding”) on a subordinate basis. From the perspective of the borrower, the loan functions as a single debt obligation under a single loan agreement and security package.
Links believes the financial performance of the Community can be further improved through the continued implementation of its business plan. So that Links is able to monetize any future increase in value, the A/B Loan includes a provision for a future loan advance or “Earn Out” upon the achievement of certain performance thresholds.
Links found the A/B Loan attractive for the acquisition as it provided higher leverage compared to a conventional bank loan, allowing Links to avoid raising unsecured subordinate debt at a higher cost of capital or diluting its ownership in the Community from taking on additional equity partners. The loan was structured with interest only payments throughout the three year term of the loan and can be repaid any time after the first year, allowing Links to limit debt service expense over the near-term, while providing flexibility to refinance any time after twelve months.
Financial covenants for the A/B Loan were structured to ramp up over time. Given that impacts from COVID may impact short-term performance, this feature was important to the borrower as it ensures that they can focus on operating the community.
The customized financing structure helps Links with both its short and long-term financing needs. By maximizing leverage, Links is able to preserve capital for future growth and support of its communities. Additionally, the Earn-Out provision of the loan provides the opportunity for Links to secure additional loan proceeds to fund future growth with successful results at the Community. Through its Private Client Group, HJ Sims secured capital from its high net worth investors in a turbulent market to fulfill its investment. The loan closed on June 15, 2020, meeting Links’ timing expectations and agreement with the seller. The financing marks HJ Sims’ second successful closing with Links.
For more information on how Links Funding II was Financed Right® by HJ Sims, please contact: